More than 3.6 million Brits have no idea how many pensions they have and may be paying more pension fees than necessary, according to new research by Scottish Widows.
The life assurance and pensions company is calling for the government to introduce a scheme that would automatically consolidate workers’ older pension schemes, saving consumers time and hassle and potential pension fees. An auto-enrolment scheme would automatically consolidate small pension pots as people move jobs and reduce the risk that they forget about older pension schemes.
Neglected pension pots
The average British worker changes jobs 11 times during their lifetime, and this means many people have lots of small pension pots worth less than £1,000 and could be paying more pension fees than necessary.
But while savers already have the option of combining their pensions, research shows that one in 10 have no idea how to do this, while 12% say it’s just too much hassle. As a result, more than two fifths (44%) say they’ve never bothered to track down savings from a previous employer.
How to find out about old pensions
The UK government estimates that a huge £400m is currently lost in unclaimed pension savings. If you think you may have an old pension pot out there somewhere, you can look it up using the pension tracing service. You will need to know your previous employer’s name or pension provider. This service will not tell you if you have a pension or the value of your pot, but it will give you contact details for the scheme so you can write to them and find out the value your pension.
Once you have found out about any older schemes, should you consider consolidating them by transferring them to your current scheme? Let’s take a look at the pros and cons of consolidating your pension funds.
Pros of consolidating pension funds
- If you have lots of smaller funds, you may save fees by consolidating them into one larger fund.
- It is probably easier to keep track of one scheme rather than several smaller ones. You will be able to work out if you are on track with your pension goals for retirement.
- If you are coming towards retirement then it can be simpler to sort out buying an annuity or doing an income drawdown with one larger scheme than lots of smaller ones. Having one fund may save you some pension fees.
Cons of consolidating pension funds
- Some workplace pensions (particularly older ones) are defined benefit schemes that pay out an amount based on your average or final salary. If you have this type of scheme, you should consider taking professional advice before transferring it to make sure you won’t miss out on valuable future benefits.
- Not all pension schemes allow you to transfer in small funds. You will need to check with your provider.
- Some schemes may have pension fees to transfer funds. Have a look at your terms and conditions.
How to do a pension transfer
Most pension providers have forms online to allow you to transfer in older pensions. You will need to have details of your old scheme ready and think about what funds you would like to invest your transfer into. It will usually take a few weeks for the transfer to go through.
Once you have consolidated your pensions into one scheme then your “sense of ownership and control” will increase according to Peter Clancy, Head of Pensions Policy at Scottish Widows. And feeling in control of your pension and retirement plans means you can relax and concentrate on the important things in life.
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